7 Tax Tips for Recently Married Taxpayers

If you’ve recently updated your status from single to married, you’re not alone – late spring and summertime is a popular period for weddings. Marriage also brings about some changes with your taxes. Here are several tips for newlyweds from the IRS.

  • Notify the Social Security Administration  It’s important that your name and Social Security number match on your next tax return, so if you’ve taken on a new name, report the change to the Social Security Administration. File Form SS-5, Application for a Social Security Card. The form is available on SSA’s website at www.ssa.gov.
  • Notify the IRS if you move  IRS Form 8822, Change of Address, is the official way to update the IRS of your address change. Download Form 8822 from IRS.gov.
  • Notify the U.S. Postal Service  To ensure your mail – including mail from the IRS – is forwarded to your new address, you’ll need to notify the U.S. Postal Service. Submit a forwarding request online at www.usps.com or visit your local post office.
  • Notify your employer  Report your name and/or address change to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.
  • Check your withholding  If you both work, keep in mind that you and your spouse’s combined income may move you into a higher tax bracket. You can use Publication 505, Tax Withholding and Estimated Tax, to help determine the correct amount of withholding for your marital status, and it will also help you complete a new Form W-4, Employee’s Withholding Allowance Certificate. Fill out and print Form W-4 online and give it to your employer(s) so the correct amount will be withheld from your pay.
  • Select the right tax form  Choose your individual income tax form wisely because it can help save you money. Newlywed taxpayers may find that they now have enough deductions to itemize on their tax returns rather than taking the standard deduction. Itemized deductions must be claimed on a Form 1040, not a 1040A or 1040EZ.
  • Choose the best filing status  A person’s marital status on Dec. 31 determines whether the person is considered married for that year for tax purposes. Tax law generally allows married couples to choose to file their federal income tax return either jointly or separately in any given year. Figuring the tax both ways can determine which filing status will result in the lowest tax, but filing jointly is usually more beneficial.

 

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6 Tips for Charitable Taxpayers

I don’t like linking charity with taxes.  I’m of the mind that if you feel compelled to give money to a person or an organization, you should go ahead and do it, and the tax benefits should be an afterthought.  I’m glad that the IRS does allow some tax benefits for charitable giving, but before I get into those, I just wanted to stress that you should follow your heart, not your 1040 in this instance.

OK, now that I’ve said that, if you DO give and want to see how to maximize the benefits, here are 6 tips from the IRS:

1. Tax-exempt status. Contributions must be made to qualified charitable organizations to be deductible. Ask the charity about its tax-exempt status, or look for it on IRS.gov in the Exempt Organizations Select Check, an online search tool that allows users to select an exempt organization and check certain information about its federal tax status as well as information about tax forms an organization may file that are available for public review. This search tool can also be used to find which charities have had their exempt status automatically revoked.

2. Itemizing. Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.

3. Fair market value. Cash contributions and the fair market value of most property you donate to a qualified organization are usually deductible. Special rules apply to several types of donated property, including cars, boats, clothing and household items. If you receive something in return for your donation, such as merchandise, goods, services, admission to a charity banquet or sporting event only the amount exceeding the fair market value of the benefit received can be deducted.

4. Records to keep. You should keep good records of any donation you make, regardless of the amount. All cash contributions must be documented to be deductible – even donations of small amounts. A cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity that includes the charity’s name, contribution date and amount usually fulfill this record-keeping requirement.

5. Large donations. All contributions valued at $250 and above require additional documentation to be deductible. For these, you should receive a written statement from the charity acknowledging your donation. The statement should specify the amount of cash donated and/or provide a description and fair market value of the property donated. It should also say whether the charity provided any goods or services in exchange for your donation. If you donate non-cash items valued at $500 or more, you must also complete a Form 8283, Noncash Charitable Contributions, and attach the form to your return. If you claim a contribution of noncash property worth more than $5,000, you typically must obtain a property appraisal and attach it to your return along with Form 8283.

6. Timing. If you pledge to donate to a qualified charity, keep in mind that for most taxpayers contributions are only deductible in the tax year they are actually made. For example, if you pledged $500 in September but paid the charity just $200 by Dec. 31 of that same year, only $200 of the pledged amount may qualify as tax-deductible for that tax year. End-of-year donations by check or credit card usually qualify as tax-deductible for that tax year, even though you may not pay the credit card bill or have your bank account debited until after Dec. 31.
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Starting a New Business

Thinking of starting a new business?  Congrats and thank you!!  Small businesses are what keep our country running.  I thought I’d post a few things to think about if you are starting a new business.  Of course, this isn’t an exhaustive list, and I’d encourage you to take the time to speak with a lawyer and a good CPA to make sure that all your ducks are in a row.  The expertise is worth the cost.

Having said that, here are a few things to think about:

 

  1. What type of business will it be?  There are all sorts of types of businesses — the most common is the sole proprietorship.  This is by far the easiest and simplest business structure.  When I used to tutor, I was considered a sole proprietorship.  I reported my income and expenses on Schedule C of my 1040.  There are other types of businesses as well — partnerships, S-corporations, LLCs, among others.  One of the positives about an LLC (which stands for Limited Liability Company) is that the owner(s) will have limited personal liability for the business debts.  This type of business needs to be formally set up, usually through a lawyer’s office.  In any case, if you decide to meet with a lawyer or a CPA, this will probably be one of the things they discuss with you.
  2. What types of taxes will I be responsible for?  The type of business structure that you choose will also determine what types of taxes you pay and how you will pay them.  The four general types of business taxes are income tax, self-employment tax, payroll taxes, and excise taxes.  If you decide to have an employee as a part of your business (side note: it is not your decision on whether or not someone who works for you is an employee or a subcontractor, they either are or they aren’t), then I would recommend you have a bookkeeping program like QuickBooks and sign up for their payroll subscription.  It is a very cost effective way to do a small payroll.
  3. Employer Identification Numbers: Typically, a new business will need a Federal Employer Identification Number (FEIN or sometimes just EIN).  You can go to irs.gov and see if you need to get one for your business.
  4. Recordkeeping: No matter what type of business you set up, you need to keep track of what comes in and what goes out.  This may be as simple as a spreadsheet (that’s what I used for my tutoring), or you may want to get software like QuickBooks.  Good recordkeeping also includes keeping the support documents for your numbers, like receipts and invoices.  Also, just from an accounting standpoint, it is almost impossible to run a business well if you don’t know how much money is coming in and where the money goes as it goes out the door.

 

I hope this gives you some things to think about.  Take a look at IRS Publication 583 (Starting a Business and Keeping Records)  and Publication 334 (Tax Guide for Small Business) for some more fun reading.

Tips or Service Charge? Guidance for restaurant owners and servers

There’s new guidance out on whether a payment by a diner is a tip or a service charge.  (For a primer on how to handle the taxes on tip income for servers, take a look here.)

In the new guidance, the IRS attempts to clarify the difference between a tip and a service charge.  A service charge is to be treated as wages, not tips.  Service charges are not to be included in any calculation that arrives at an hourly tip rate, a tip rate calculated on percentage of sales, or any other rate determination method.

Here are the criteria for how the IRS views tips:

1. The payment must be made free from compulsion

2. The customer must have the unrestricted right to determine the amount

3. The payment should not be the subject of negotiation or dictated by employer policy

4. Generally, the customer has the right to determine who receives the payment

So, for example, if a restaurant has a policy that automatically adds a gratuity of 18% for all parties over 8 people, and the money is split among the servers and bussers, then that would be a service charge.  If a restaurant leaves the tip line blank on a bill, but the restaurant shows sample tip calculations of 15%, 18%, and 20%, then the amount filled in by the customer would be treated as a tip.

 

 

Vacation Home Rentals

Do you have a vacation home?  Do you rent it out for part of the year, or even for just a week or two?  Should you include that on your tax return??  Read on! [Read more…]

Sales Tax in QuickBooks

Sales tax is one of those necessary evils when you own your own business.  It’s a pain to track, collect and pay it, but QuickBooks can help out with some of the nitty gritty reporting, whether you are in a state that has one state-wide sales tax rate, or if you have different rates for different counties or other jurisdictions.

As with anything, it’ll take a little bit of time to set it up properly, but once you’re set up, then you should be pretty much good to go. [Read more…]

How to safeguard your tax records

hat tip to xkcd.

The upcoming hurricane season may not be the only reason that you need to safeguard your tax records.  There are many good reasons for making sure that your tax records, as well as all of your other important papers, are safeguarded properly.

The last thing you want to worry about during a time like that is the IRS, so here are some steps for your peace of mind: [Read more…]

QuickBooks Inventory — a Primer

Many small businesses have inventory — whether it is just a small amount of hair care products in a beauty salon or a whole nursery full of plants — it’s something that you need to keep track of properly.

We’ve found that many small businesspeople rely on an Excel spreadsheet to keep track of their inventory, but did you know that QuickBooks has inventory functionality as well?  QuickBooks can help you manage the costs of your inventory and even let you know when it is time to order more goods.  Here’s a quick summary of the options that are available to you: [Read more…]

Tax Court Disallows Charitable Deduction

The Tax Court recently sided with the IRS and disallowed a taxpayer’s charitable deduction to their church.  The contributions were primarily made up of checks written to their church for amounts larger than $250.  The church acknowledged its receipt of the contributions on a year-end statement to the taxpayers, but there was no language concerning whether any goods or services were provided in consideration for the contributions, as required by the IRS code.

 

Folks — make sure that if you donate $250 or more to a charity that you get a written acknowledgement of the contribution.  Here’s what it HAS to specifically include:

  • The amount of the cash and a description of any property other than cash
  • Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property donated
  • A description and good faith estimate of the value of any goods or services received, or if such goods or services consist solely of intangible religious benefits, then it must state that.

Medical and Dental Expenses

Here is a helpful video from the IRS regarding deducting your medical and dental expenses on your 1040.

If you need a little more information, you can take a look at our previous post on medical and dental expenses, or as always, give our office a call at 770-478-7424.